How to decide which charities spend donations well

Like many people this time of year, Ardmore resident Betty-Jane Stoeckle is feeling a bit overwhelmed - not, in her case, by the arrival of the holiday season, but by the daily onslaught of charity solicitations.

Stoeckle welcomes at least some of the pitches. A retired Germantown High School English teacher, she is a regular, cheerful giver to groups as diverse as the American Red Cross, the Salvation Army, Philabundance, Habitat for Humanity, and the Southern Poverty Law Center. But she doesn't like making assumptions, especially when it comes to the dozens of other requests her generosity attracts - a small fraction of more than a million nonprofits that competed for more than $316 billion in donations last year, according to Giving USA.

"I'd like my money to be well-spent," Stoeckle says. "I've got at least a hundred envelopes here, and I'm stressed out."

How do her recipients stack up? Most do well, according to standards set by a handful of nonprofits whose mission is to evaluate others. But they also illustrate some of the enduring challenges and controversies in rating charities.

Charity Navigator (charitynavigator.org), which rates about 6,000 nonprofits, awards its maximum four stars to Philabundance and Habitat for Humanity International, and gives three stars apiece to the Red Cross and the Southern Poverty Law Center. It does not rate the Salvation Army. Because religious groups don't file IRS Form 990, Charity Navigator says it lacks "sufficient data to evaluate their financial health."

Different conclusions are reached by CharityWatch (charitywatch.org; 773-529-2300), which focuses on about 600 nonprofits and examines audits and other information beyond the 990s, providing detailed reports to members who donate at least $50 a year. "We're not just taking what the charity says and reprinting it," says president Daniel Borochoff.

CharityWatch helped push the Salvation Army to start disclosing audits, Borochoff says. Its most recent report awards the group's Eastern region an A (excellent), in part because it spends 82 percent of its budget on program services and just $14 per $100 to raise money. CharityWatch says a "highly efficient" charity should spend at least 75 percent of its budget on programs and pay $25 or less to raise each $100.

Some fund-raising companies keep $85 or more per $100 - one reason to be wary of heavy-handed cold calls from unfamiliar groups.

Though CharityWatch does not rate Philabundance, it gives an A-minus to the Red Cross and a B-plus to Habitat. But it differs sharply with Charity Navigator on the Southern Poverty Law Center. The bigotry-battling nonprofit gets an automatic F - along with 15 other organizations - because it reports asset reserves large enough to cover more than five years of current expenses.

Financial analyses are not the only way to evaluate a charity's performance. Efficiency may not equal effectiveness, and formulaic standards can overlook a group's unusual needs. Some of the newest methods, used by organizations such as GiveWell and Philanthropedia, rely on deep evaluations and recommendations by experts in each charity's field.

GiveWell (givewell.org), which plans to offer new suggestions this week, most recently recommended GiveDirectly, which distributes cash to extremely poor Kenyans, and the Schistosomiasis Control Initiative, which fights a devastating African parasite.

Philanthropedia (myphilanthropedia.org), an affiliate of GuideStar.org, recommends top charities in a variety of fields by "crowd-sourcing expert opinion."

Borochoff doesn't dispute the value of such approaches but says he worries about unintended favoritism. He says critics of quantitative analyses have overstated their arguments in recent complaints about "the overhead myth," as though it's wrong to weigh how much money makes it through to end purposes. "You can have a greater chance of accomplishing good if you can see that most of your money is going to a bona fide program."

The good news is that many organizations impress the experts whatever their methods.

At the top of Philanthropedia's recommendations for "emergency response"? The International Red Cross and Red Crescent. Nearby are Oxfam and Mercy Corps - two other groups that Stoeckle is considering and that also won A's from CharityWatch and four stars from Charity Navigator.